Moody’s is latest to move state’s outlook to ‘positive’

All 3 major credit ratings services now view state’s outlook favorably

Moody’s Investors Service on Friday revised the state of New Jersey’s outlook to “positive” from “stable,” while affirming the state’s issuer and general obligation bond ratings at A2.

In doing so, Moody’s has joined the other two major credit rating agencies (S&P and Fitch) in upgrading the state’s outlook from “stable” to “positive.”

Moody’s said the upgrade is based on the idea that the state is headed in the right direction financially.

“The positive outlook is supported by the likelihood the state will continue its current practices for managing reserves and long-term liabilities, which could support improvement in the rating,” it wrote.

In March, Moody’s gave the state its first upgrade since 2005.

Bond ratings are significant, as the grade is an indicator of credit quality — or the creditworthiness of corporate or government bonds.

And, while the A2 rating is strong, there are five higher ratings designations. Moody’s said the state still has long-term liabilities that are higher than most other states.

“New Jersey’s A2 issuer rating incorporates the state’s accumulation of healthy fund balances and strong tax collections that have accommodated full pension payments and retirement of some debt,” it wrote. “The state’s improved reserves position it to better withstand potentially less favorable economic and revenue trends in the year ahead.

“The rating continues to reflect long-term liability and fixed cost burdens that are much higher than those of most states. The rating on the state’s general obligation bonds is equivalent to the issuer rating because of the broad full faith and credit pledge on the bonds.”

The ratings

Moody’s, one of the three big ratings agencies, has at least 18 rankings for general obligation bonds. An A2 grade is the sixth-highest. (More than half the states have one of the two top ratings.)

Here’s a look at the 10 top ratings:

  • AAA: Prime
  • Aa1: High grade
  • Aa2: High grade
  • Aa3: High grade
  • A1: Upper medium
  • A2: Upper medium
  • A3: Upper medium
  • Baa1: Lower medium
  • Baa2: Lower medium
  • Baa3: Lower medium

Gov. Phil Murphy and Treasurer Elizabeth Maher Muoio obviously were pleased with Moody’s announcement, as it continues a positive trend. Since the enactment of the Fiscal Year 2022 state budget last year, New Jersey has received three credit rating upgrades and is now on “positive” outlook with all four major credit rating agencies.

“This recognition from Moody’s is further proof that the steps we’ve taken to right our fiscal ship have led to real progress,” Murphy said. “We are now better prepared to meet our present obligations and weather any uncertain economic conditions. While we are proud of all we’ve accomplished thus far, we must continue making strides to improve our fiscal health and resilience.”

Muoio agreed.

“Receiving a ‘positive’ outlook is encouraging because it tells us not only that the decisions we have made until this point are the right ones, but the direction we are headed in is equally promising,” she said. “Given the uncertain economic forecast, having a healthier surplus than the state has seen in decades should be a comfort to residents who rely on state services all the more during difficult economic times.”

Moody’s offered factors that could lead an upgrade of the ratings for the state and the general obligation bonds:

  • Demonstrated or binding commitment to maintain pension contributions at actuarially indicated levels;
  • Implementation of structurally balanced budgets through economic cycles;
  • Maintenance of budgetary balances and liquidity above historic averages;
  • Reduction in leverage metrics to levels more closely aligned with other states.